CFTC Charges Texas Associated Person with Misappropriation of Nonpublic Information and Execution of Fictitious Trades

WASHINGTON, D.C.- The Commodity Futures Trading Commission announced today it filed a civil enforcement action in the U.S. District Court for the Southern District of Texas against John Cartwright, a Houston resident.<_o3a_p>

The complaint charges Cartwright, an associated person of introducing broker Classic Energy LLC, received confidential information from a Classic customer for brokering natural gas block trades and tipped this information to Peter Miller, an individual proprietary trader. Miller, in turn, traded based on this information and shared his trading profits with Cartwright.<_o3a_p>

"Market intermediaries play a vital role ensuring markets for energy derivatives are competitive and liquid," said Director of Enforcement Ian McGinley. "The CFTC vigorously pursues those who use their positions for personal gain by misappropriating their customers' confidential information."<_o3a_p>

The CFTC seeks monetary penalties, disgorgement, restitution, registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations.<_o3a_p>

Case Background<_o3a_p>

The complaint alleges from at least June 2016 to September 2019, Cartwright, while employed by Classic, disclosed material nonpublic information obtained from his customer in breach of his duties to that customer.<_o3a_p>

Specifically, when this customer disclosed to Cartwright orders for block trades in natural gas futures, Cartwright disclosed this information only to Miller, who then traded using a spread trading strategy that involved entering into non-arm's length, fictitious block trades in financially settled natural gas futures contracts with the customer; and electronically executing physically-delivered natural gas futures trades for the same quantity and contract month.<_o3a_p>

By trading in this manner, Miller obtained advantageous prices for his block trades and sequenced his spread trades in a manner that maximized his ability to profit unlawfully. Cartwright provided legitimacy to the block trades by confirming their execution to NYMEX as if they were handled in the normal course of Cartwright's brokerage services. According to the complaint, Miller shared his profits from these trades with Cartwright.<_o3a_p>

The CFTC previously filed a complaint against Miller and entered an order against Classic for their roles in the scheme. [See CFTC Press Release Nos. 8396-21and 8634-22]<_o3a_p>

The Division of Enforcement staff responsible for this case are Lauren Fulks, Alison Auxter, Thomas Simek, Christoper Reed, Charles Marvine, and former staff member Clem Ashley. <_o3a_p>